How Is Equity Calculated in a Residential Property, and How Do I Access It?
How equity in a residential property is worked out, what limits how much you can borrow against it, and the main ways investors access it.
Equity is the slice of your property you actually own outright — the gap between what it’s worth and what you still owe against it. It’s also one of the main levers investors use to fund a next purchase without saving a fresh deposit from scratch, one piece of the wider picture covered in our guide to property investment in Australia. Here’s how equity is worked out, what actually limits how much of it you can use, and the main ways investors draw on it.
How is equity calculated in a residential property?
Equity is the property’s current value minus the balance still owed on any loan secured against it:
Equity = current property value − outstanding loan balance
Example (illustrative figures only, not a market valuation or forecast): a property currently valued at $700,000 with a loan balance of $450,000 has equity of $250,000 ($700,000 − $450,000 = $250,000).
That $250,000 isn’t automatically available to spend, though. Lenders work off a portion of it — more on that below — and the property’s actual value on any given day is an estimate until a bank valuer or a sale confirms it.
How does my equity change over time?
Two things move the number, and they pull independently of each other:
- Paying down the loan. Every principal repayment reduces the amount you owe, which increases equity even if the property’s value doesn’t move at all.
- Changes in the property’s value. Values can rise, fall, or sit flat over any given period, and no one — including MyBrix — can tell you in advance what a specific property will be worth at a future date. If you’re trying to understand what drives value in a particular area, our guide to researching property markets walks through the public data (ABS, state planning, vacancy rates) rather than picking winners.
Because both levers move independently, equity can grow through your own repayments even in a period where the market itself is flat. Our guide to capital growth versus rental yield covers how those two return components interact more broadly for a first investment.
How much of that equity can I actually borrow against?
Lenders don’t lend against 100% of a property’s value — they hold back a buffer. A common reference point is the 80% loan-to-value ratio (LVR): Moneysmart notes that Lenders Mortgage Insurance (LMI) is usually payable once borrowing exceeds 80% of the property’s value, and that trigger isn’t stated as an owner-occupier-only rule — Moneysmart’s wording carries no carve-out or separate threshold for an investment loan. Many people use 80% of value, rather than the full value, as the starting point for estimating what they could realistically borrow against before LMI comes into play, though the exact maximum any lender will offer is a policy decision that varies between institutions.
Example (illustrative figures only), continuing the numbers above: 80% of a $700,000 valuation is $560,000. Subtract the $450,000 already owed, and there’s roughly $110,000 of “usable equity” before that reference point is crossed — not the full $250,000 calculated earlier.
If you do borrow above that 80% mark, LMI may apply. There’s no published government or ASIC figure for what LMI actually costs — Moneysmart doesn’t publish premium ranges for any borrower type — so treat any number you see quoted online as an estimate specific to that calculator’s assumptions, not a fixed fee. Helia (a mortgage insurer) publishes an LMI fee estimator as an illustrative tool, not a government-set rate.
What are the main ways to access equity in a residential property?
| Method | How it generally works | What to weigh up |
|---|---|---|
| Cash-out refinance | You replace your existing home loan with a new, larger one and take the difference in cash | The new loan is assessed against current serviceability rules in full, and it can reset your interest rate and remaining loan term |
| Redraw facility | You draw back extra repayments you’d already made ahead of your minimum schedule | Only works if your loan has a redraw feature and you’re genuinely ahead on repayments; some lenders restrict or condition redraw for investment purposes |
| Home equity loan or line of credit | A separate loan or credit facility is added, secured against the same property, sitting alongside your existing loan | Usually priced and assessed separately from your main loan; a line of credit may only charge interest on funds you’ve actually drawn |
Whichever route you take, ask directly whether the new facility will be cross-collateralised with your existing property — that is, whether the lender wants to use two or more properties as combined security for the one loan or a linked group of loans, rather than each property standing as separate security for its own loan. Cross-collateralisation isn’t defined on ASIC or Moneysmart, so there’s no single “official” version of it, but the general effect is worth understanding: linking properties as combined security can make it harder to sell, discharge, or refinance a single property in isolation later, because the lender will want to review the remaining linked debt and security first. Asking for a stand-alone loan structure is a fair question to put to any lender or broker.
If drawing further on your own home’s equity isn’t something you’re ready to do — or you’d simply rather not increase the debt against the place you live in — fractional ownership is a different entry point into residential property investment, without needing to refinance anything. MyBrix’s NestEgg option, for example, sets a minimum contribution of $100 a month (if a month’s contribution falls short of the current Brix price, it isn’t topped up — it carries over and accumulates until there’s enough to acquire a whole Brix). Our guide to fractional property investment covers how that mechanism works in full.
What will a lender check before releasing equity?
Accessing equity — through any of the methods above — generally means the lender treats it as new borrowing and reassesses your ability to service it, much as it would a fresh loan application:
- An interest rate buffer. Under Prudential Standard APS 220, authorised deposit-taking institutions (ADIs) must apply a buffer of at least 3.0 percentage points over a loan’s actual interest rate when testing serviceability, applied to new and existing debt commitments (APRA APG 223).
- A benchmark expense check. Lenders commonly reference the Household Expenditure Measure (HEM) alongside your actual verified expenses; ASIC’s guidance (RG 209) is clear that a benchmark is a plausibility check, not proof of what you actually spend, and a verified lower figure doesn’t have to be treated as a floor.
- Shaded rental income, if the funds are going toward an investment property. APRA’s guidance describes a minimum 20% haircut on expected rental income as prudent practice for ADIs, with a larger haircut where there’s a higher risk of the property sitting vacant.
- The same responsible-lending obligations as any home loan. ASIC’s RG 209 responsible-lending regime applies to residential investment loans on the same footing as owner-occupier home loans — investment borrowing is captured as its own category under the National Credit Code, not carved out of consumer protection.
None of the specific numbers a lender lands on — the LVR it will approve, the exact expense figure it accepts — are set by regulation; APRA and ASIC set the framework, and individual lenders apply their own policy within it.
Does using equity to invest change my tax position?
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
Under current law, if you use borrowed money (including funds drawn against equity) to buy a rental property and the rental income doesn’t cover the deductible expenses — including interest — the ATO calls this negative gearing. Under the current rules, the resulting net rental loss can generally be deducted against your other income, such as salary, and any part that isn’t absorbed can be carried forward to a later year.
Interest deductibility turns on what the borrowed money is actually used for, not on what secures the loan. The ATO’s guidance puts it directly: “the character of interest on money borrowed is generally ascertained by reference to the objective circumstances of the use to which the borrowed funds are put by the borrower” — using the property as security for a second loan doesn’t make that loan’s interest deductible if the money itself goes toward a private purpose. Where a redraw mixes investment and private use, the loan becomes what the ATO calls a mixed-purpose account, and the interest has to be apportioned between the two uses on a fair and reasonable basis — you can’t simply direct your repayments to the private portion first. This is exactly the kind of question worth taking to a registered tax agent before you draw down.
Update (as at July 2026): A law change starting the 2027-28 income year quarantines net residential rental losses — once it applies, deductions beyond your residential rental income can no longer be offset against your other income (like salary); instead they can only be used against residential rental income or residential capital gains, including carrying forward to future years. This applies to residential property interests acquired on or after 7:30pm AEST on 12 May 2026; interests acquired before that time are grandfathered under the current-law treatment described above (Act No. 49 of 2026, Schedule 2, new s26-155 ITAA 1997). What counts as a “new” residential dwelling for the related carve-out has not yet been defined in a registered legislative instrument, so that boundary can’t be stated yet.
Quick recap
- Equity = current property value minus what’s still owed against it.
- It moves as you pay down the loan and as the property’s value moves — the two are independent, and no one can predict future value for you.
- Lenders typically work off a portion of that equity (commonly referenced against an 80% LVR benchmark) rather than the full value, and policies on the exact maximum vary by lender.
- The main access routes are a cash-out refinance, a redraw facility, or a separate equity loan/line of credit — each assessed, and often priced, differently.
- Ask about cross-collateralisation before you sign anything that uses more than one property as security.
- Whatever you draw on equity for gets reassessed against current serviceability rules, and using it for an investment property has its own tax considerations — get advice specific to your situation.
